Digging Up The Figures On Mining Profits

As the mining tax debate grinds on, we’re learning a few things about the way politics operates in Australia.

The first is that mining companies are powerful. The Minerals Council of Australia, led by its chief spokesman, Mitchell Hooke, proved itself the most effective lobby group in the country during the emissions trading debate. Now it’s proving it all over again as the debate over the Resource Super Profits Tax unfolds.

Buoyed by multi-million dollar donations from its member companies, the Minerals Council is cashed up, allowing it to buy serious ad space in national newspapers and have some serious resources for spin doctoring. And perhaps more importantly, Hooke has proved to be an exceptionally able communicator, delivering his sound-bites with flat vowels and blunt self-assurance. The Government would dearly love to have another communicator with Hooke’s cut-through ability on their side just now. So, for that matter, would the Opposition.

The second thing we’re learning is that significant sections of the Australian media are all too happy to buy mining industry spin, with barely a hint of independent research into its validity. The last week has seen a dizzying array of tax percentage numbers circulate in the national media, as the Government, the Opposition and the mining industry have issued claim and counter-claim about the true levels of minerals taxation in this country.

How much tax do mining companies pay? Is it 43 per cent, as the Minerals Council claims (pdf)? Is it 13 to 17 per cent, as the international study (pdf) by US tax economists Kevin Markle and Douglas Shackelford quoted by the Henry Report says? Or is it something else again — 12 per cent lower than the average corporate tax rate, as a Treasury analysis released on Monday afternoon claims (pdf).

It doesn’t help that the big mining companies themselves are less than transparent. A glance at the BHP Billiton financial results tells you that the world’s biggest mining company paid $3.16 billion in tax to Australia in its last full year of operations, on revenues of $50 billion and profits before tax of $11.6 billion; that’s a net taxation rate of 27 per cent. Rio Tinto paid $1.98 billion on profits of $6.3 billion, for a net figure of 31 per cent.

But neither Rio or BHP break out their tax figures in any great detail, making it difficult if not impossible for the independent analyst to assess the make-up of royalties, company taxes and other taxes in their total tax spend.

Even so, the weight of evidence is on the side of the Treasury and the Government. If the biggest and most profitable companies are paying approximately 30 per cent, we can expect the minnows and second-tier companies in start-up phases to be paying rather less. Bear in mind that less profitable companies pay less tax and that there are significant tax exemptions for things like exploration, depreciation and fuel tax; moreover, many mining companies are substantially debt funded, which gives them a tax advantage over companies funded by equity. The latest ATO figures suggest the average tax take across the mining industry is about 27 per cent.

There’s been very little discussion of the slippery notion of "profit" in this debate, either. Big corporations can write all sorts of things off as expenditures or asset depreciations if they wish to artificially lower their profits: this is why most companies report a figure called "EBITDA", or earnings before interest, tax, depreciation and amortisation. Shuffling earnings between national jurisdictions is another handy ploy; so is reclassifying certain types of assets as liabilities.

Not that the Opposition has engaged with any of this. They have simply resorted to character assassination, first attacking the credentials of the authors of the US tax paper, and then ratcheting up their hatred of Treasury Secretary Ken Henry.

It’s base politics, but then again, perhaps we shouldn’t expect these guys to get to grips with the numbers. For instance, Opposition finance spokesman Andrew Robb’s attack on the credentials of Kevin Markle was simply grubby. Markle may indeed be a "graduate student" — but this has nothing to do with the quality of a paper co-written by a highly respected US professor of taxation. As for the body publishing the working paper, the National Bureau of Economic Research, it’s one of the world’s foremost economics bodies, publishing the papers of multiple Nobel prize winners, and responsible for determining the length and duration of US recessions. The controversy has drawn the bemused Markle and Shackelford into the media debate and they have pointed out that their study was never intended to be used for the purposes of determining the appropriate rate of Australian mining taxes.

But few in the media have taken the time to adequately research the numbers either. In a typically balanced piece, Tim Colebatch of The Age does analyse the data, and finds that the figures on all sides are questionable. Meanwhile, a ginger group of 20 leading economists, including former ACCC boss Alan Fels, has issued a media statement in support of the RSPT. The debate looks set to dominate what could well be the last week of Parliament before the election.

The parliamentary brawl over the mining tax illustrates the obvious point: that this debate is about politics, not economics. And the politics of this debate is ultimately pretty clear. It’s about the eternal struggle between capital and labour; between the power of multinational corporations and the power of elected governments.

It’s no surprise that big companies want to keep as much of their profit as possible, in order to return it to shareholders. And it’s certainly no surprise governments want to tax them. Mineral resources have always been one of the key sources of government revenue. All the rest is spin — including the claim that this new tax will somehow "kill the golden goose" or lead to the end of the Australian economy as we know it. If a mine is profitable, then 70, 60 or even 43 per cent of those profits are still profits.

Ultimately, where you stand in this debate will be a function of who you think should enjoy the lion’s share of this nation’s mineral wealth. Should it be you and me, through the services our government provides us? Or should it be the investors in for-profit corporations, through the dividends those companies pay them?

I don’t have a problem with mining companies paying more tax. Do you?

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